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Banking & Finance | Legal

Banks should reimburse consumers for APP losses says Consumer Action Law Centre Chief Gerard Brody

8 Sep 2022, by Amy Sarcevic

Authorised push payments (APP) – a type of scam where people are tricked into transferring money to fraudsters – is reaching epidemic proportions around the world.

In the United Kingdom, APP fraud losses grew 71 percent in the first half of 2021; and have climbed a further 40 percent this year to GBP 474,000 (GBP 7,000 per person).

Imposter bond investments – where fraudsters impersonate financial companies and offer fake government/treasury bonds or fixed term deposits – are among the most common types.

In Australia, imposter bond losses tripled to $20 million in the first half of this year, the ACCC records, but the real figure could be much higher given a lack of reporting. In fact, ACCC research shows that only 13 percent of people report being victim to any kind of scam.

Gerard Brody of the Consumer Action Law Centre says it is time banks started reimbursing people for APPs and other types of blameless fraud, with most bank reimbursement policies currently restricted to unauthorised transfers.

He says this could spur private sector intervention in the fraud prevention space, better protecting consumers and the economy.

“The private sector – along with government and law enforcement – has already played a key role in disrupting unauthorised transfers. Raising the bar on their liability would create an incentive to invest more in APP fraud prevention, meaning we could achieve great results in that area too,” said Gerard ahead of the Credit Law Conference, hosted by Informa Connect.

“It would also help banks gather more information on APPs. At present they are largely unreported by consumers, as there is no real incentive to tell banks – they won’t get their money back regardless. If consumers are able to get reimbursed, they will call their bank and tell them exactly what happened, so banks could be pivotal in APP data collection. This could make a real impact on fraud prevention,” he added.

Blazing the trail

British bank TSB is the first bank globally to have implemented a Fraud Refund Guarantee, claiming to have reimbursed 99 percent of its APP victims since the scheme was introduced (the remaining 1 percent of claims were found to be fraudulent themselves).

Soon, the rest of the United Kingdom will follow suit, with a self-regulatory code mandating banks to reimburse customers for blameless losses currently being pushed through Parliament. This builds on an existing scheme known as the Contingent Reimbursement Model Scheme – a voluntary code that offers protection for consumers of signatory firms.

Gerard does not see any reason such a mandate would not work in Australia and believes it could have positive effects for both consumers and banks – both of whom suffer tremendous losses from APPs.

“Around half of all AFCA banking complaints relate to scams, so that translates to an awful lot of complaint handling fees from a bank’s perspective,” he said.

Indeed, since introducing its Fraud Refund Guarantee, TSB bank has reported positive financial outcomes. “This approach actually saves the bank money, as it allows it to better focus on supporting customer and catching fraudsters,” TSB said in a statement.

To date, the ACCC was not revealed any plans for implementing such a mandate and says it just monitoring initiatives, such as TSBs.

“The ACCC is monitoring initiatives overseas and advocating for more scam prevention measures in the financial system, including the UK’s requirements for Confirmation of Payee in the Authorised Push Payment Scams Contingent Reimbursement Model Code,” it said in a statement.

Moral obligation

Gerard believes swifter action should be taken. He says the scam loss figures are just the tip of the iceberg – and that, behind them, some heartbreaking stories exist.

“We have seen families being devastated by APP fraud,” he said. “Families living with vulnerabilities, like serious mental health conditions, have lost almost six figure sums. Every dollar of that is usually someone’s life or retirement savings.

“Moreover, it can happen to anyone, as the scams are becoming increasingly sophisticated. It’s a myth that only elderly people fall victim to this type of fraud,” he warns.

Indeed, victim profile statistics show that scams are increasingly targeting – and effective on – people of all ages.

According to SEON’s “Gen-Z Fraud Report” people younger than 20 had the largest year-on-year increase in fraud victimhood between 2019 and 2020. Fraud targeting this age group grew 116 percent to $70.98 million ($3000 per person) during this period, and incurred 23,186 (reported) victims.

Airing more of his views on these statistics and giving expert recommendations on APP fraud prevention, Gerard Brody will present at the upcoming 32nd Annual Credit Law Conference hosted by Informa Connect.

This year’s event will be held 12-14 October at Intercontinental Sanctuary Cove Resort Queensland.

Learn more and register your place here.


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